Treacherous Indian Stock Market – 40% of Listed Shares considered Dangerous by Exchanges

Greenworldinvestor has reiterated time and again that the Indian stock markets are heavily manipulated and the dice is loaded against the retail investor. The stock market regulator SEBI is too slow to prevent the many scams that take place regularly in the Indian stock markets. Retail investors have been retreating from the stock markets since 2008 and the asset managers in India are seeing heavy redemption despite a rising stock prices. Now the exchanges NSE and BSE have themselves provided proof of how badly run the stock markets are, listing out 2135 securities as being illiquid and requiring additional due diligence (read “stay away”) from investors. With around 40% of the listed shares being deemed as dangerous, it makes sense why retail investors in India prefer gold and bank deposits over stocks.

Vanishing Companies – Small companies simply vanish from the stock market. They stop reporting results to the market and the investors have no way to exit as their stock stops trading as the exchange bans the company from trading. You are literally left holding scraps of paper.

Collusion between Promoters of Companies and Big Brokers – There have been many instances when promoters and big brokers manipulate the market to ratchet up the prices of stocks with no fundamentals to speak of. The instances of the “pump and dump” are too many to enumerate.

Accounting Scandals – While the “Satyam Scandal” is the biggest one, PWC in a recent report estimated that a very high percentage of companies resorted to accounting gimmicks. Read Satyam Computer Services scandal.

Incestuous Dealings between private and public companies the same group – Most of the Indian family groups have a labyrinthine maze of company holdings. Most of the dealings done between these companies are to the benefit of the promoter at the expense of minority shareholders.

Tax Frauds – Tax Frauds are dime and dozen. They are frequent and do not even raise much of an eyebrow. Get frequently entangled in the Indian judicial system for years.

Redemptions from Indian equity funds surged to a two-year high in September as retail investors cashed in after a strong rally in stock markets, a move that will put further pressure on asset managers’ profits.

The rally has been driven by foreign institutional investors, who have bought a net Rs. 85,710 crore in Indian equities, after being sellers last year.

By contrast, asset managers in India are facing falling domestic equity investments during a time when they are already reeling from stiff competition in a crowded marketplace.

The majority of India’s 44 fund houses are unprofitable according to their annual financial reports.

As part of their surveillance mechanism and to safeguard the interest of investors, leading bourses BSE and NSE have suggested extra due diligence in trading of illiquid stocks.

As per directions from market regulator Sebi (Securities and Exchange Board of India), the BSE has listed out 2,135 such stocks, while NSE has also named 300 illiquid stocks where additional due diligence is required.

Illiquid stocks are those where trading activities are limited and are said to pose higher risks to the investors, as compared to the frequently traded shares.

There are about 5,000 listed companies on the BSE, while NSE has more than 1,600 companies listed on its platform, while there are many common stocks between the two bourses.

Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to greensneha@yahoo.in or call me on +913340606492.